When It’s Too Costly to Retire

A few days ago, the Washington Post published an amazing article by Mary Jordan and Kevin Sullivan entitled The New Reality of Old Age in America. Right off the bat, the article sets the tone for what’s to come:

“I’m going to work until I die,” says one 74-year-old in a generation finding it too costly to retire.

That quote comes from Richard Dever, who works for $10 an hour as a temporary maintenance worker at a campground. His job, at age 74, requires him to mow grass, empty trash bins, swab shower stalls, and all of the other types of manual labor tasks that are needed to maintain a nice campground.

As the article discusses, Dever is doing this because, without that $10 per hour, he and his wife wouldn’t be able to live:

In addition to their $10-an-hour paychecks, the couple receives $22,000 a year from Social Security, an amount that has barely budged while health-care and other costs have soared.

“If we didn’t work, our money would run out real quick,” Richard said.

How did they get there?

In 1960, when John F. Kennedy and Richard Nixon were running for president, Richard started repairing homes and Jeannie made root beer floats in a drugstore back home in southern Indiana, near the Kentucky border. Later, they ran a business that put vinyl siding on homes and a little start-up called Southwest Stuff that sold Western-themed knickknacks.

They raised two children and lived well enough but never had much extra cash to put away. After a lifetime of working, they have a small mobile home in Indiana, a couple of modest life insurance policies and $5,000 in savings.

The thing is, this isn’t an unusual story. According to the U.S. Social Security Administration, 19.7% of Social Security recipients 65 or over receive 100% of their income from Social Security, and another 33.4% receive over 90% of their income from Social Security (meaning they have a very tiny nest egg).

There are no pensions. There is no 401(k). There’s nothing other than Social Security.

It’s worth noting that Social Security is less income than a full time minimum wage job. A person working 40 hours a week, 50 weeks a year makes more than a person solely relying on Social Security. What’s worse is that Social Security benefits are growing at a rate that’s slower than the cost of living for people in that age bracket, meaning that each year, the Social Security checks buy less and less.

Even with Medicare, once you figure in the cost of health care for people in those groups, there’s not enough money to go around to keep food on the table, a roof over their head, and clothes on their back. So, they work.

I was perhaps even more stunned by the story of Joanne Molnar later on in the article:

A few miles up the road from the Devers, Joanne Molnar, 64, and her husband, Mark, 62, live in their RV and work at another campground.

For 21 years, Joanne worked as a manager for a day-care company in Fairfield, Conn. She said she paid regularly into a 401(k) account that, at one point, was worth more than $40,000.

By the time she left the company in 2008, however, its value had fallen to $2,000.

Molnar said the company’s owner thought he was doing his 100 employees a favor by managing their retirement accounts. “But he didn’t know what he was doing,” she said. Instead of being angry with him, she’s furious with the 401(k) system.

“It stinks,” she said.

A final quote, from Joanne’s husband:

“Forget the government. It’s got to be ‘We the People,’ ” he said. “We’re on our own. You have to fend for yourself.”

I strongly encourage you to read the whole article, as it’s a great piece of journalism – very readable and clear, mixing real-life stories with the data that shows how widespread and serious the challenges really are.

Let’s start unpacking this.

What If You’re in This Boat?

Let’s say you’re in that 50% of 65-and-older Americans who receive 90% or more of their income from Social Security. What exactly do you do?

Obviously, you’re probably going to have to work to supplement your income unless you forego some very basic things, like health care. The money simply isn’t there to keep up with health care, keep food on the table, keep a roof over your head, keep the power on, keep clothes on your back, and so forth. If you want to make ends meet just with Social Security, a job is probably going to be a part of the picture for you. There’s no way to escape that picture.

Again, stating the obvious, but frugal living is absolutely essential. If you’re in this situation, frugality is already a big part of your life, but make sure that you’re really maximizing it. Do you need that cable or satellite service? Do you need that cell phone service? Do you need that home internet service? Do you need your car? Could you move to a smaller place with fewer expenses? Those are serious questions to be asking yourself.

You should also find out if you’re eligible for any additional community and local services. It is highly likely that, if you’re in this situation, you qualify for usage of a local food pantry or clothing pantry. Use it. That’s what a local food pantry and a local clothing pantry are there for. It’s there for you. It’s there to make sure that no one has to make a choice between eating and having heat in the winter. It’s to make sure no one has to choose between having warm clothes and being able to afford a doctor’s visit. Your community wants to help you, but you have to go there and get the help. You have to take the final step to bring it to your door. Do it.

While you’re visiting such places, ask the staff about additional resources. People working at food and clothing pantries care deeply about your situation and will help you in any way they can. If they don’t know of any services, they will know of people to direct you to who can help you find additional services. It’s often hard to find what’s available at low cost and what’s available for free for seniors with low income in an area, so you can start this journey by simply finding a local food pantry, going there and signing up, and asking them what the next step is.

Beyond that, there’s not much you can do. It’s very unlikely that there will be significant enough changes in federal and state programs in the next few years to really help with your situation. It’s really up to you, unfortunately. Live frugally and take advantage of the services available to you now.

What If You’re Afraid of Heading There?

I want you to stop right now and scroll back up and re-read the section above that relates to those who are 65 and older who primarily have to live off of their Social Security benefits. No matter how you spell it out, that’s a challenging situation. There simply isn’t enough money to go around, and the typical options of improving income by going back to school or angling on your career path really don’t work at that point.

If you’re on a financial path that’s going to likely put you in that situation, you need to do what you can now to change that path. Here’s what you can start doing right now.

If you’re not saving for retirement, start. The reality is that you simply cannot rely on the government to provide you with adequate resources to live in retirement. Social Security, as it exists right now, isn’t enough for most people to cover Medicare costs and basic living expenses. You’re going to have to supplement it with either additional work or savings, and the only one of those two you can handle right now is savings. So, get started.

Your best bet in most situations is to simply open up your own individual retirement account. For most Americans, the best option is to simply open a Roth IRA at a large, reliable investment firm – I use Vanguard for my own Roth IRA. Sign up there, select a straightforward investment (I suggest choosing a Target Retirement Fund for a year that’s somewhere around your 70th birthday), and then choose to start automatically depositing money into it. All of that can be done online, quite easily.

If your employer offers a 401(k) or 403(b) or TSP plan and matches your contributions, then you should choose that over the Roth IRA and get every dime of matching money. Sign up for that plan and contribute enough to at least make sure that you’re getting the matching funds your employer offers.

Start now. Start socking away something. It is the best thing you can do for yourself.

If you are saving for retirement, save more. What if you’re already saving? Save more. Suck it up, cut out a few expensive things, and bump up your savings to the next level. Raise your 401(k) contributions by another percent or two. Add another $25 a month to your Roth IRA contributions.

Whatever you’re saving, it is very likely that more savings will be a big positive down the road. It’s going to help you avoid a situation like the people in that article. It can make the difference between working because you have to when you’re 75, or working because you want to at a meaningful job of your choosing.

You have the power to choose to save more now, and in doing so, you give yourself the power to choose a better life later. Do it.

Understand your retirement savings. It’s not enough just to save, either. You should never, ever fully trust someone else’s knowledge or decisions regarding your retirement savings. This is your future. You owe it to yourself to put in the work to actually learn about retirement savings.

Here’s your homework: Go to the local library and check out a copy of The Bogleheads’ Guide to Retirement Planning. In my opinion, it’s still the best single volume on practical retirement savings out there. Get it. Read it.

When I say “read it,” I don’t just mean shuffle through the pages and skip any sections that seem “hard” or that aren’t clear to you. Those are the important sections. What you should do is get out a notebook and a pen, read the book slowly, write down anything that seems remotely important that you may want to remember, and, most important of all, if you hit something you don’t fully understand, stop and write it down, and then go to the computer or your smartphone and figure out what it means. This is an absolute must. If you hit something you don’t understand and then keep on trucking, all you’re going to do is get more and more and more lost, and thus the rest of the book is a waste of your time.

Yes, this will take a while. I often spend 30 or 40 hours processing a book that is challenging to me. I take tons and tons of notes on books I’m trying to understand and incorporate into my knowledge of the world. I stop constantly to look up words and ideas and understand them. It’s really okay to do that – in fact, it’s the best way.

If you can tackle the entirety of The Bogleheads’ Guide to Retirement Planning that way, you’ll have a pretty strong understanding of your retirement savings options. You’ll know what pitfalls to look out for. You’ll know what choices are before you. You’ll know how to allocate your money (we’ll get to that more in a second). In short, you’ll be able to steer your retirement savings away from some of the pitfalls discussed in the Washington Post article above.

Diversify your retirement savings. One of the big lessons that a good retirement book will teach you is the need to diversify your retirement savings. This is so important that I’m actually mentioning it here as a bullet point. You have to diversify.

You absolutely should not have all of your money in one individual stock investment. If your company’s 401(k) puts your money just into company stock, that’s a very, very risky move. You absolutely need to have most of your money in other things, so you need to make that happen by whatever means you can.

It’s okay to have most of your money in a single index fund or mutual fund, because those investments are at least somewhat diversified within themselves. A Target Retirement Fund, for example, is already diversified, so it’s a good place to put most or even all of your money.

Just avoid having all of your retirement savings in the stock of one single company or in one specific real estate investment. That’s a giant flashing danger sign.

Plan ahead now for the kind of work you might do as a second act in the first years of retirement. It’s likely that even with more retirement savings, you may still be in a position where you have to work in what you may consider your “retirement years.” That’s okay, but you should come to terms with that now and plan for it now.

What might your second act look like? Would it just be working at a campground or greeting people at Wal-Mart? Or are there ways you can continue to ply some of the skills you have from your main career or skills that you might have from hobbies or side gigs?

Take a look at what you’re good at, what skills you have, and what things you enjoy doing. At the same time, take a look at people in your life who are in their 70s and seem to be doing interesting things. Talk to them. See how they got there. See if they have any advice for you as to how you could prepare yourself to be in a similar situation when you reach that age.

Even if retirement is closing in, you can still prepare yourself so that the landing is a lot less rough. You just need to start now.

What If You’re Young?

Now, what if you’re young? What if you’re young enough that the idea of old age and retirement seems incomprehensibly far off? (To tell the truth, I’m still in this boat to an extent. Even with all the long-term thinking and planning that I do, I still struggle to visualize myself in my 70s.)

The first thing you can do is follow most of the advice from the preceding section for people moving toward retirement. Start saving now. The earlier you start saving, the better. If you’re already saving, see if you can save more. Learn about retirement savings – and don’t just “learn” about it, actually learn. Those are the biggest steps you can take to ensure your own future.

What else?

I think the most important step is to be aware of what the government is doing on both the state and national level with regards to your future. I’m not going to suggest a political stance that you should have – everyone has an opinion, and most of them are wrong, right? What I am suggesting is that you become aware of what actions the government is taking (or considering taking) and how your representatives on the state and national level are participating in the decision-making process behind those actions.

Along with that, make sure that you understand the facts about what is going on. Don’t rely on the opinions being served up by your media source of choice. Read about bills and changes being considered from a variety of sources, even ones that you may not fully agree with in terms of their editorial stance. Get lots of angles before you make up your mind.

Along with that, do some thinking on your own. What do you think the role of the government should be in helping people in retirement? How do we pay for that? Is that truly a fair way of doing things? Don’t just latch onto an easy opinion. Think it through. It’s important, not just for you, but for everyone.

Being involved does require some effort. Being involved beyond simply being on “one side” of the issues requires even more effort. It’s worth it. You’ll not only be able to vote sensibly in the future and pick people that really reflect your views, but you’ll also be able to talk sensibly to others regardless of their opinions, find common ground, and perhaps even change some minds.

Final Thoughts

I think we can all agree that finding yourself in retirement age without the means to actually retire is a difficult tragedy. It often means that a lifetime of hard work has simply led to even more years of hard work, and it often means that people are in situations where they are struggling with the basic essentials – food, water, clothing, and shelter.

Unfortunately, there is no easy solution to that problem. Given the current state of public retirement support in the United States, people absolutely have to supplement Social Security and Medicare with additional income in order to be able to avoid working (or, at least, avoid extremely difficult choices) in their final years.

If you’re younger than retirement age, you have a chance to take action and avoid this situation yourself. If you’re substantially younger, you can get involved with figuring out a better solution for us all, because you have time to shape the system that you’ll be using when you arrive at that age.